What is SGMS's Intrinsic value?

Scientific Games Corp (SGMS) Intrinsic Value Analysis

Executive Summary

As of June 21, 2025, Scientific Games Corp's estimated intrinsic value ranges from $2.90 to $64.10 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $64.10 +10.4%
Dividend Discount Model (Stable) $2.90 -95.0%
Earnings Power Value $55.95 -3.7%

Is Scientific Games Corp (SGMS) undervalued or overvalued?

With the current market price at $58.07, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Scientific Games Corp's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 4.2% 5.2%
Adjusted beta 1.16 1.4
Cost of equity 8.1% 11.5%
Cost of debt 5.9% 13.1%
Tax rate 7.1% 9.8%
Debt/Equity ratio 1.55 1.55
After-tax WACC 6.5% 11.7%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 9.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,153 (FY12-2021) to $9,943 (FY12-2031)
  • Net profit margin expansion from 1% to -6%
  • Capital expenditures maintained at approximately 9% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $(1,234) $8,057M 83.6%
10-Year Growth $64 $14,302M 71.8%
5-Year EBITDA $5 $8,596M 84.6%
10-Year EBITDA $53 $13,259M 69.6%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 9.8%
  • Long-term growth rate: 4.0%
  • Fair value: $-45.65 (-178.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.5% (Low) to 8.1% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $1 to $5
  • Selected fair value: $2.90 (-95.0% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $1,129M
Discount Rate (WACC) 11.7% - 6.5%
Enterprise Value $9,640M - $17,388M
Net Debt $8,105M
Equity Value $1,535M - $9,283M
Outstanding Shares 97M
Fair Value $16 - $96
Selected Fair Value $55.95

Key Financial Metrics

Metric Value
Market Capitalization $5614M
Enterprise Value $13719M
Trailing P/E 15.77
Forward P/E 374.28
Trailing EV/EBITDA 10.35
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 1.55

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 55% $19.23
Dividend Discount Model (Stable) 27% $0.44
Earnings Power Value 18% $5.59
Weighted Average 100% $45.93

Investment Conclusion

Based on our comprehensive valuation analysis, Scientific Games Corp's weighted average intrinsic value is $45.93, which is approximately 20.9% below the current market price of $58.07.

Key investment considerations:

  • Strong projected earnings growth (1% to -6% margin)
  • Consistent cash flow generation

Given these factors, we believe Scientific Games Corp is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.